China just let its currency float more it was more pegged to the dollar before. Also isn’t this a good thing for US consumers as it cancels out some of the trade war stupidity
Contrary to what you hear in the US, China has not been trying to devalue their currency for the past few years. In fact, they’ve been trying to strengthen it as they’ve been trying to build their domestic market and present the Remnibi as a dollar alternative.
Admittedly China did indeed artificially weaken their currency to help exports in the past but this hasn’t been true for quite some time.
China was keen on strengthening the yuan and were doing that for a couple of years, but the trade wars have shifted their calculations. The earlier strengthening gives them some additional leeway.
I think the reason for this drop in the exchanges is because letting the yuan drop is China’s way of saying they’re in for a fight. A stable yuan was basically a precondition for trade talks, and this coming right after the last round means the hope for a resolution seems remote at best.
I still don’t understand how China expects to win the trade war. The US has a lot more firepower. But I guess leadership incentives are not aligned with the country and it’s peoples incentives (which is true in the US as well).
What is winning the war mean in this case? Because the producers in the US, such as soy bean farmers, are not winning anything. Consumers and producers generally don't seem to win trade wars. Especially when tariffs come into play.
The final prize in this war is who gets to write the rules of the world order, who gets to become/remain the hegemony. Economics/trade is just one battleground of many.
Soybeans are so inconsequential to this, in the larger picture of things. Sure, it sucks for farmers.
Would you rather have rich soybean farmers and a social credit score assigned to you personally for posting your opinions openly?
I feel like you're offering a false choice. The point of the tariffs is to punish China for a trade deficit and make companies produce things more in the United States according to this administration. Companies aren't changing things as a result of these tariffs as far as I can tell. So currently, consumers and producers are being punished and the administration isn't getting what it wants either. I just struggle to see the point. Personally I think it's more of an anti-globalist segment of the administration, as a trade deficit isn't necessarily a bad thing.
China is doing less propping-up of Yuan than before because its currency reserve was draining for years. The market rate should be even lower if China lets it float.
Doesn't always work, look at Switzerland. They keep using this strategy to minimize the impact of the strength of the CHF versus all the other currencies, and currently Switzerland is holding more than 750 billions of $ of currency reserve (only Japan and China hold more...). Desplite this, CHF is still gaining value versus all the other currencies.
Yes they could but this will just destroy Swiss economy and likely create out of control inflation.
Doing this is always a risky policy. SNB has told many time that they will use unlimited means to keep the value of the Swiss francs however in 2015 they had to give up on the promise to keep a 1/1.2 EUR/CHF exchange rate.
What history told us is that even hedge fund (like Soros in 1992) can bring a central bank to its knees.
Stock valuation is not money. You get money if you sell. The stock is a virtual valuation. You need to sell to make it real. You only lost imagined money.
Stock valuation is an up-to-the-second price for a highly liquid asset that is fungible to cash; a good comparison would be the exchange rate affecting the value of the "cash" in your checking account, which is not actual cash, but rather an IOU for cash. "Imagined money" is not a good way to describe stock valuation.
If it were actually guaranteed to be gone, that would matter as a comparison point. The market however obviously isn't fixed and can rise or fall, bounce back or not. There's nobody that can consistently, accurately predict near-term moves.
The market could be down another 3% this time next week. Or it could snap back - emotional over-reaction - and recover most of this loss in the next week or three (sentiment on Wall St suddenly changes to eg: this means the Fed will have to step in and cut rates further, so stocks rise back up; it's just about impossible to tell how the wind will blow in the coming weeks, even if there is a hint of real bearishness about re the trade war & China).
It doesn't affect just the dollar, but because of the nature of trade between the US and China, the current US administration's trade goals and strategies for achieving those (tariffs) it's particularly relevant to USD/RMB.
"Asian markets all fell more than 1.6% Monday, and Hong Kong's Hang Seng closed down 2.9% as protests continue in the region. In Europe, London's FTSE 100 finished down 2.5%. Germany's DAX and France' Cac 40 closed 1.8% and 2.2% lower, respectively."
> Dow plunges 750 points after China devalues its currency
The article title:
> Dow plunges 800 points after China devalues its currency
And the first paragraph of the article is:
> The Dow tumbled more than 830 points [...]
So... which is it?
Edit to add: ok, the article's contets are apparently dynamically generated (or are being updated manually). I didn't know they did that. You can disregard this comment.
We've lost just under 20% off GBP vs USD since the vote went to Leave from the anticipated Remain.
China's an export economy, no? So, devaluing helps to buoy production for export, keeping people in work. Seems to be how China does things: I'm thinking of all those ghost cities they build.
Dow crashed because China is more competitive with cheaper yuan, and they are unafraid to use one of their most potent trade weapons: currency manipulation.
Exactly. Trump claimed that he was some kind of expert negotiator who would walk in and teach the Chinese government a lesson and improve trade policy on behalf of American firms.
But instead he's made a fool of himself and of the US, and shown the world that China is more formidable than anyone realized.
The justification that the Trump administration gives is that if you look at the subset current account that is trade, then further subset down to goods only (not services) and then futher subset down to bilateral goods trade with the USA then indeed China has a big surplus.
I'm not an expert but your article shows the current account, not trade.
And about the trade most of the sources say between 400-500b US$ of trade surplus per year. Which means the exports are about 22% larger than the imports.
so if there’s a chinese product that i like and it costs 100 yuan before devaluation, and say 1 dollar == 100 yuan. after devaluation, the product might cost 150 yuan but now 1 dollar == 150 yuan. so my dollar still buys the same amount of goods. what am i missing?
But doesn’t that also raise Chinese import costs the same amount? Or is that where Chinese tariffs in the things they import come into play (like Canadian canola, etc)?
See the section titled "How would that help China?
> Say you own a Chinese factory making lawn ornaments, and you sell a lot of pink flamingos to an American retailer. You price each at $1 — they may sell for far more in retail outlets in the United States, but shipping and storage account for most of that. When the renminbi is 6 to the dollar, that translates to 6 renminbi in sales.
> But when the currency depreciates to 7 to the dollar, that $1 flamingo is worth 7 renminbi in sales to you. Or you can cut the price — say, from $1 to 85.7 cents — and still make your original 6 renminbi in sales. Your American competitor, who has to buy and sell in dollars, has to grudgingly cut prices to compete.
this also means that people in china cant afford products from the US, and China is a major consumer of goods, especially for large sectors of our agribusiness.
Also the fact that their yuan is worth less now is increasing uncertainty in the markets, and stocks dont like uncertainty, hence the sellof.
It’s devalued in relation to other currencies. In China, 100 yuan still = 100 yuan. So your 1 dollar gets you 50% more than it used to (going by your example).
Effect is not immediate as most contracts are still written in USD. But the producer would still be paying wages in yuan so that many actually be a short term profit boost
The impact of exporting deflation across the global economy right at the moment it needs it the least. I'm looking specifically at the euro area, and what it does next.
You have it backwards. Lets assume that Chinese product does not have any US tariffs.
So it costs 100 yuan = 1$. After devaluation, it will cost 50 yuan = 50 cents. When tariffs hit, you pay 50 cents to the US treasury to import it, so it's back to $1.
In the next case, lets assume the tariffs hit first. Tariff of 50% makes the import cost $1.5, so China devaluation puts it back at $1 effective to you, after the tariffs you pay.
What you're missing is that the tariffs are meant to make the local manufacturers's similar product being sold at $1.25 more price competitive to you, but the devaluation will nullify that.
Say you (as the US) wanted to keep the same level of trade between the US and China- and the tariffs rose and the yuan fell in such a ratio that this remains true.
The net outcome is good right? The US gets slightly more tax (larger % of a smaller number), Chinese economy has to deal with loss of currency value?
Just wish China government would agree to the demands on intellectual property and tech patents transfer. Getting to a deal could be really easy if China stops the intellectual property and transfer requirements.
i wonder if this is a cultural thing or a gov/business decision directed at foreign companies. do chinese business people rip other chinese business people off?
This is the PRC playing high-speed high-stakes catch-up to the rest of the world. China was nothing of any geopolitical significance prior to the cultural revolution. The colonial powers were clearly in charge of the world, with Portugal owning Macau from 1557, the British owning Hong Kong from 1841 and the French, German, American, British, Danish and Italians each owning sections of Shanghai in the 1800s. The French Concession being the best known.
At the time of the HK handover in 1997, HK represented a whopping 18% of all of China's GDP. Today, HK represents only 3% of China's GDP. This happened in only 20 years.
China is doing what I can imagine any other country in their position would do: take advantage of foreign companies using their discount labor pool to obtain the technologies necessary to first become self-sufficient and eventually to lead.
We're at a juncture now, where for better or worse, the US is no longer willing to put up with the status quo because the myopic policies of the past, focused on self-enrichment, are coming home to roost. It's probably too late honestly, whether American companies withheld the last few years of advancements or not, the Chinese have developed sufficient domain expertise to catch up and lead on their own in short order. They do have 3X the US population after all, and appear much more motivated in their pursuit of science and technology than the US is.
This point in history represents a number of long-term story arcs coming together at once. I'm not condoning it, there's lots of history here.
Hong Kong was created from scratch under British rule -- it was a sleepy village that the British identified as a terrific potential deep water port. This is important in understanding the current crisis there-- there's a degree of historical and cultural separation from "mainland" China in Hong Kong's roots.
While true (and historically a place where people fled the mainland in general, AFAIK), it doesn't change the fact that allowing this settlement in the first place is indicative of a power imbalance at the time. For instance, if the Chinese wanted to set up a colony in the Channel Islands today (Jersey, Guernsey, Isle of Man, Isle of White), I'm pretty sure that wouldn't go over well. Nor would the UK attempting to set up shop today, say, in the South China Sea (in the Spratleys for instance). The balance of power has definitely tipped.
China is doing exactly what you say with islands in the Pacific that they promised not to militarize and then moved in military bases. There balance of military power hasn't tipped at all, the western countries just stopped thinking it was okay to establish permanent settlements in other people's countries and then use that to claim we owned it. We still create best permanent military bases when we want to. If Britain or the US wanted we could destroy the Chinese Navy and Air Force without blinking. It's only when you get to ground forces that you see any kind of advantage in the Chinese military, because like the USSR in WW2 there are always more bodies.
> There balance of military power hasn't tipped at all, the western countries just stopped thinking it was okay to establish permanent settlements in other people's countries and then use that to claim we owned it.
Isn't that power? Power doesn't necessarily mean carrying out actual warfare, it means being able to do whatever you want without anyone stopping you. "We could stop them if we wanted to we just ... don't want to, yeah that's right..." rings pretty hollow. The fact that zero enforcement action has been taken means China is more powerful in the region.
All the UK can do to enforce the handover agreement is write strongly worded memos that get sent right into the shredder in Beijing. Similarly with the islands in the South China Sea. The response is basically "what are you going to do about it?" Not what could you do about it.
It's cultural. There's a serious adherence to the phrase let the buyer beware, however it's almost impossible to solve locally because if you acknowledge a problem you're apparently responsible for fixing it or you can be disappeared if it makes the country look bad. China is a very unique country with interesting sets of values. The whole global recycling chain got upended because a movie in China showed how nasty and harmful the recycling process is for low end plastics and metals which embarrassed the country. I remember there was an official who got in trouble for smiling at an inappropriate time. Almost everything is about appearance, much like the US early in it's ascendancy. China will eventually change when it's in their best interest to protect other people, it's not as if the US doesn't do very similar things to some of it's allies. Just look at the chicken tax or Canadian business suits for example. It's just in our best interest to enforce IP law currently because we own some of the most valuable IP. We over protect a ton of it too. That's nothing compared to our blatantly excessive copyright laws. Simply put it massive rent seeking behavior on the part of the US. As far as devaluing their currency, it's one of the few cards they have to play but it will hurt them in the long run as it means their foreign investments will lose value unless it's in real estate.
As a macroeconomist, coming from a degree in applied mathematics, I can only emphatically ‘second’ this statement. There’s many ‘dynamics’ in macroeconomics but unlike physics there are few “conserved quantities” (even ‘wealth’ isn’t a conserved quantity) that might allow one to distinguish between plausible and implausible scenarios The end result is that prediction is basically a retroactive decision as to which axioms to adopt.
Thanks for your honesty; I get really annoyed sometimes when economists are held up as the gold-standard of societal prediction. Some of the 'newer' ideas that have made their way to the core of economics study, like game theory, are still painfully simplistic models that fail to take into account more complicated dynamics that result in outsize error signals. Usually, in the physical sciences it's possible to justify throwing out some higher order terms, but when you start talking about "externalities", things can get unhealthily misrepresented quickly. Frankly, it's no wonder that our species hasn't achieved a higher level of self-reflection when human behavior itself is so complicated.
I came to macroeconomics by way of game theory. I'm going to step in because it's actually a far more sophisticated discipline than one would at first imagine given the (admittedly extremely pedagogical, verging on the puerile) examples one is likely to encounter when not studying it in depth (Prisoner's Dilemma, I'm looking at you). Combinatorial Game Theory has been fundamental in addressing “artificial intelligence challenges” such as defeating human Chess grandmasters and more recently, despite the hype about neural network self-training, Go. Bayesian Game Theory deals with how a rational agent starts off in a situation whereby it knows little of what it is competing against and gradually refines that knowledge whilst also getting the best results given the imperfect information available. Differential Game Theory de-discretises time and is useful, for example, in programming both the manoeuvres to be executed by a surface-to-air missile as the target attempts evasion and in modelling a financial market. Algorithmic Game Theory is concerned with measuring the computational complexity of various strategies, and ensuring that they are in fact computable. Taken overall, it is a very complete and compelling field of knowledge. The problem is that we game theorists tend to assume that because we found an optimal solution by some advanced analytical technique, it should/will be observed to be the norm “in the wild”; sometimes this turns out to be the case, perhaps because there are cumulative or incremental adaptive paths to arriving at it, oftentimes it does not (typically because it's of the “bolt from the blue” variety). Most game theory research publicised is often of the “so simplified it doesn’t obviously apply” (even the most banal thought-experiment, that of the one-shot Prisoner's Dilemma, involves somebody in police custody essentially making a decision whether to spend their life in jail or being fried on the electric chair, a pretty extreme decision to be making on the spur of the moment and all the assumptions made regarding this scenario, including the iron-clad case against them by the investigators and knowledge that the co-conspirator is also in police custody, are fairly unrealistic).
There's a lot of things game theory is very good at and has contributed to. It isn’t represented very well in publicly-accessible material and what is expressed comes across as markedly simplified to the point of irrelevance (which the examples are). But it’s a very powerful tool, actually.
Why would China ever want to allow that U.S. companies to sue the living crap out of local businesses because of copyright? Is there anything that China can win here? I always thought the chinese governments strategy was to grow local businesses. Global copyright enforcement would stomp that.
Western companies have been happy to hand over IP. It's part of the deal. If they didn't like the deal, they wouldn't have gone to China. It can't be called 'theft' when it was willingly given.
Pretty certain that wholesale theft was not part of the "voluntary deal". Can you point to exact language in agreements that granted them absolute rights to any IP?
However, the western executives that signed those deals, have long made their massive bonuses, it's all been paid out and some of those execs probably even retired. What do they care?
Such a great way to raid the company you manage at the expense of shareholders/employees.
> Can you point to exact language in agreements that granted them absolute rights to any IP?
Those agreements between private entities are almost certainly not public. However, I found a press release by Siemens AG [1] that says "Part of the contractual terms and conditions involves support and technology transfer in connection with production of the trains." In another press release [2], a Siemens VP is quite chipper about this: "Siemens is even more confident to support the development and modernization of Chinese railways and transfer highly advanced and proven technology of international standard to China"
I don't think you can speak of "wholesale theft" in this case of a voluntary deal.
Read something other than marketing materials for PR purposes.
The CEO of Siemens at the time was Klaus Kleinfeld. The bribery scandals were so bad in 2007 that he was forced out, and forced to settle with Siemens, 2 millions euros.
Now, ostensibly, these were scandals about Siemens bribing other countries. Do you think people at Siemens, with such high moral integrity, managed to pocket some bribes themselves?
Perhaps in exchange for handing over valuable IP? What's a signature or two between friends.
I don't see a reason for discounting Siemens' own PR department as a source for what the decision-makers at Siemens think of deals they make. Whether they were bribed to agree is a different matter. In any case, it was public knowledge that technology would be transferred, so still not something I'd call "theft".
>Still, the State Department warned - as it had for years - that publicly confronting China over its online economic warfare would damage relations with Beijing, so American government statements about the hacking did not disclose the scope of China's efforts.
Beijing has an extremely long time horizon. They will endure the Trump administration and wait for a successor government to be more pliant to their needs.
The USA has an extremely long time horizon. They endured the Qing dynasty, the PRC, the troubled times under Mao, and now bide their time patiently, waiting for a successor government more pliant to their needs.
I’m not fond of this whole “Eastern mysticism”/100-year-horizon crap; that sort of thinking is just soft-soled racism—along the same lines as the Noble Savage trope.
I hadn't thought of it that way and its an interesting point but in terms of racism I think its only something people think about the Chinese government. I don't think anyone attributes the same characteristic to American born Chinese.
It's the exact same thing that was said about Japan during its boom phase in fact. It was universally proclaimed that Japan was different because they had a very long time horizon and the West was short-term obsessed. It obviously plays into the eastern mysticism you reference. It's why Masayoshi Son has any credibility when he talks about having a 300 year plan for the Internet.
Back in reality, you can find countless examples of China behaving with rather absurd short-term obsession and making foolish mistakes due to that short-term thinking. They're doing it right now with Hong Kong. Or for example, in the way they've been willing to become the most leveraged nation in world history at record speed merely in order to buy a few more minutes of faster short-term 'growth' before they have to accept slower real growth in the system. That's long-term destruction in exchange for a short-term prop-up, something that is counter to the fantasy projection about China's long-term magical behavior. It also happens to be exactly what Japan did, exchanging long-term damage (resulting in long-term stagnation as the extreme debt robbed their economy of all of its dynamism) for a short-term propping up of the economy.
The idea that China will ascend without having to change seems silly to me too. Either the great firewall will come down or the country will stagnate. Economics and sociology doesn't change simply because the government says it does. China is either due for a massive correction or another civil war. People will only take being oppressed for so long and generally they stop taking crap from their government when things are getting better not worse. How things shake out in Hong Kong are going to echo through China.
They do have a long time horizon, and on that horizon is a point at which China no long substantially relies on exports to the U.S. and can reject U.S. demands without fear of significant disruption to its domestic economy. Indeed, everything China has been doing has been designed, in part, to hasten that day.
Total exports as a share of China's GDP have been dropping since the mid 2000s. They're now below 20%. Americans, and especially American pundits, however, seem to be living in the 1990s and early oughts, when exports peaked near 40% of GDP.
China still has huge poverty problems, but what's changed is that both China and the world have grown up and fully industrialized. The entire world is China's market now, not just the richest, Western nations. The world is a much bigger, wealthier place today than 20 years ago, and the trend will only continue.
When did China originally start disrespecting intellectual property? Or is it the case that they've never respected it? Do you know of a good resource to learn about the history of this topic?
Developing nations (as the US was in the past) typically do not care much about IP. Read "The Lever of Riches" for a history of economic growth and IP law.
Traditionally nations only started respecting foreign intellectual property when they started to generate more IP that they wanted others to respect than they used from outside. For example, in the 19th century, the USA didn't respect British copyright. Charles Dickens was a very popular author in the USA, but he didn't get a cent from the sales of his books there. So he came over to the US a couple of times to give lectures in large auditoriums in major cities -- sort of like a rock star making money from touring rather than from album sales.
I think the reverse question is probably more appropriate. That derivative civilizations from the mediterranean maritime trading cultures have a higher geography driven disposition to sanctifying contractual agreements since that's how they subsisted life.
This is not the case for self-sufficient continental cultures like agrarian China where equality of all men isn't how you get flood control and irrigation projects done and creativity and disrupting how seeds are planted isn't what keeps you alive.
Does anyone know of any nice interactive models to play with that demonstrate trade, tariffs, and currency levels? I just don't have an intuitive sense for this yet.
Common economics as described by the news is entirely incorrect.
Trade is dependent more on environmental policy than currency ratios.
Tariffs reduce profitability of imports making them less viable for firms to use.
China’s success largely depends on low interest rates caused by the printing of money, not by a devalued currency which would be temporary as prices would adjust because as notathing says, there is international arbitrage in everything.
What we saw is the market responding both to the economics of it and also to the knowledge that China has started adjusting its currency to combat Trump's tariffs.
I think many expected this to happen, but what is interesting is that it happened today, so long before the election. China is effectively signaling that it can do a LOT more of this leading up to the election.
Imagine a lager currency adjustment that sent the Dow down 3K points. A lot of people are imagining that today who were not thinking about it before.
So this puts a lot more pressure on Trump to pull back on the tariffs. But Trump won't want to do that yet, so China has a bit of time to illustrate that Trump is not in control of things the way he claims to be.
As someone who does not want the US Government meddling in the economy, I'll be very pleased if China manages to force Trump to repeal the tariffs, regardless of whether China continues its own backward trade policies.
Given this administration's thinking pattern, wouldn't they see the potential damage to US manufacturers and try to increase tariffs further, vicious-circle style? Who gets constrained first? If that doesn't cease, couldn't that eventually obliterate trade relationships entirely and make war more likely?
> Given this administration's thinking pattern, wouldn't they see the potential damage to US manufacturers and try to increase tariffs further, vicious-circle style?
I think they will want to do that, but ultimately the US has limited ability to do certain things.
> couldn't that eventually obliterate trade relationships entirely and make war more likely?
Yes, that is in my opinion the worst aspect of Trump's trade policy. Economic cooperation between people of different nations helps prevent war. Trump is punishing Americans for cooperating with Chinese exporters, while trying to vilify the Chinese government, Chinese academics studying in the US, etc.
It's a horrible and repugnant political ploy. The US woke up and looked in the rear-view mirror and saw that China caught up dramatically in the past few decades (during which the US wasted trillions on the middle east).
China did not waste trillions in the middle east. Instead Xi lifted an unprecedented number of people out of poverty and invested heavily in Africa. China pours more concrete in a month than the US does in a year, and China produces more top tier hard science research than the US, not to mention China's top universities are 100x more competitive than Harvard.
Trump's actions reveal a weak and flailing US, the worst thing any of us can do is assume that he has a clue what he's doing in any kind of negotiation or foreign policy scenario.
Trump puts 10% tariffs on Chinese imports bringing billions into the treasury, China devalues currency to compensate... net effect: Americans pay the same price but get billions in free tax money. Thanks, I guess?
1) The tariffs are not getting paid by China. That money is coming from American businesses that buy from China. The tariffs just force those companies to look for cheaper alternatives.
2) The devaluation now makes China that cheaper alternative again even with the tariffs because now the USD goes further.
End result now is it makes the tariffs more useless and China continues to disallow American imports.
US exports are also down 12%, the Chinese government embargoed all purchases of US Agricultural goods by State owned Enterprises (SOEs), which constitute about 1/3rd of China's GDP.
Thus, the US trade deficit has been made worse, the US will continue to import from China.
China's central bank owns a huge chunk of US debt, so in effect, this is being covered by the US government over the long term, i.e. see the _Twin Deficits Hypothesis_ that federal deficits and trade deficits are related.
Also, the central bank in China didn't do anything to devalue the yuan, it was propping it up. A tariff decreases demand, ergo, it decreases demand for RMB vs USD, ergo, exchange rates drop and the yuan becomes cheaper from lower demand.
There's a "symmetry theorem" in economics that predicts this outcome to restore equilibrium (trade deficits offset by currency adjustment). So let's stop trying to cook up more excuses for Trump's trade policy. His own economic advisers disagree with it, and the fiction that "mexico" or "china" will pay for these tariff actions he's taking is a straight up lie to the citizens of the country.
Tariffs do result in money to the government... from US importers. My mother, for example, sells products on Amazon that are manufactured for her in China. She must now pay tariffs to the government when she has more products made for her, and has had to stop selling several products as a result, since the tariffs made them unprofitable.
Anyone who hasn't realized that this is about more than economics is deluding themselves. This is about a struggle for global supremacy between two nations with wildly different views about reality.
The CCP does not believe in the rights of the individual and holds an iron grip on China. It is instituting policies straight out of an Orwellian dystopia and wants to export its model around the world.
The most powerful nation sets the world agenda, whether we like that or not. The United States cannot allow China to set the agenda.
- Concentration camps for especially undesirable minorities
In some ways each nation is better, and in some ways worse. But the important point is that both are using the same playbook to determine their domestic policies.
China had previously been "worse" for its own trade protectionism, but Trump decided to increase the US use of trade protectionism (a handout to exporters at the expense of importers and consumers as a whole).
To get a sense of the magnitude of the similarity between the two nations, consider the constant stream of stories in the US media about Chinese human rights abuses, etc., while the conditions in US prisons is largely ignored.
The US has absolutely no moral high ground over China, and it must be very amusing to Chinese people to observe the level of indignation that Americans feel about Chinese practices.
Completely false on all points. If you want to equate prisons for lawbreakers with concentration camps for political prisoners there's no further discussion we can have.
From what I understand they haven't devalued anything. They withdrew some support and let the free market do the rest, which is exactly what the US have been demanding.
Of course they did that at a time when they knew the result would suit them...
127 comments
[ 132 ms ] story [ 1643 ms ] threadAdmittedly China did indeed artificially weaken their currency to help exports in the past but this hasn’t been true for quite some time.
https://thefederalist.com/2017/07/03/china-secretly-manipula...
China was keen on strengthening the yuan and were doing that for a couple of years, but the trade wars have shifted their calculations. The earlier strengthening gives them some additional leeway.
I think the reason for this drop in the exchanges is because letting the yuan drop is China’s way of saying they’re in for a fight. A stable yuan was basically a precondition for trade talks, and this coming right after the last round means the hope for a resolution seems remote at best.
I still don’t understand how China expects to win the trade war. The US has a lot more firepower. But I guess leadership incentives are not aligned with the country and it’s peoples incentives (which is true in the US as well).
Soybeans are so inconsequential to this, in the larger picture of things. Sure, it sucks for farmers.
Would you rather have rich soybean farmers and a social credit score assigned to you personally for posting your opinions openly?
I’d say I’m definining “winning” at this point as preventing further damage.
It's rather very simply to devalue your own currency - just run the printing press a bit more and flood the market with freshly "printed" zeroes.
Do you really think the SNB couldnt print a quadrillion franks tomorrow and drive it into the ground if they wanted to?
Doing this is always a risky policy. SNB has told many time that they will use unlimited means to keep the value of the Swiss francs however in 2015 they had to give up on the promise to keep a 1/1.2 EUR/CHF exchange rate.
What history told us is that even hedge fund (like Soros in 1992) can bring a central bank to its knees.
Why not spend some on infrastructure/whatever?
Maybe they use the reserve as some sort of geo-political insurance against possible shocks (whatever those might be)
They then exchanged them for the USD they now hold.
As for infrastructure/whatever, SNB then went on a massive shopping spree in equities, ~100 billion or so.
They must be the absolutely best managed central bank in the world.
The market could be down another 3% this time next week. Or it could snap back - emotional over-reaction - and recover most of this loss in the next week or three (sentiment on Wall St suddenly changes to eg: this means the Fed will have to step in and cut rates further, so stocks rise back up; it's just about impossible to tell how the wind will blow in the coming weeks, even if there is a hint of real bearishness about re the trade war & China).
"Asian markets all fell more than 1.6% Monday, and Hong Kong's Hang Seng closed down 2.9% as protests continue in the region. In Europe, London's FTSE 100 finished down 2.5%. Germany's DAX and France' Cac 40 closed 1.8% and 2.2% lower, respectively."
As of my posting, the HN submission title is:
> Dow plunges 750 points after China devalues its currency
The article title:
> Dow plunges 800 points after China devalues its currency
And the first paragraph of the article is:
> The Dow tumbled more than 830 points [...]
So... which is it?
Edit to add: ok, the article's contets are apparently dynamically generated (or are being updated manually). I didn't know they did that. You can disregard this comment.
Right now, it says 875
We've lost just under 20% off GBP vs USD since the vote went to Leave from the anticipated Remain.
China's an export economy, no? So, devaluing helps to buoy production for export, keeping people in work. Seems to be how China does things: I'm thinking of all those ghost cities they build.
And the longer the trade wars continue the worse off everyone is.
But instead he's made a fool of himself and of the US, and shown the world that China is more formidable than anyone realized.
https://www.themoneyillusion.com/things-that-smart-people-do...
The justification that the Trump administration gives is that if you look at the subset current account that is trade, then further subset down to goods only (not services) and then futher subset down to bilateral goods trade with the USA then indeed China has a big surplus.
For example here: https://wits.worldbank.org/CountryProfile/en/CHN
So its basically saying: I see your 10% Tariff and raise you a 10% discount!
This feels like a sort of race to the bottom.
See the section titled "How would that help China?
> Say you own a Chinese factory making lawn ornaments, and you sell a lot of pink flamingos to an American retailer. You price each at $1 — they may sell for far more in retail outlets in the United States, but shipping and storage account for most of that. When the renminbi is 6 to the dollar, that translates to 6 renminbi in sales.
> But when the currency depreciates to 7 to the dollar, that $1 flamingo is worth 7 renminbi in sales to you. Or you can cut the price — say, from $1 to 85.7 cents — and still make your original 6 renminbi in sales. Your American competitor, who has to buy and sell in dollars, has to grudgingly cut prices to compete.
This means US consumers will now have 50% discount on all Chinese goods, or a 50% tax on exactly the same US goods.
Terrible for US manufacturing.
Also the fact that their yuan is worth less now is increasing uncertainty in the markets, and stocks dont like uncertainty, hence the sellof.
The impact of exporting deflation across the global economy right at the moment it needs it the least. I'm looking specifically at the euro area, and what it does next.
So it costs 100 yuan = 1$. After devaluation, it will cost 50 yuan = 50 cents. When tariffs hit, you pay 50 cents to the US treasury to import it, so it's back to $1.
In the next case, lets assume the tariffs hit first. Tariff of 50% makes the import cost $1.5, so China devaluation puts it back at $1 effective to you, after the tariffs you pay.
So it's a war between tariffs and devaluation.
The net outcome is good right? The US gets slightly more tax (larger % of a smaller number), Chinese economy has to deal with loss of currency value?
https://en.wikipedia.org/wiki/China–United_States_trade_war
They just won't enforce anything, unless it's to their own benefit, been that way for decades.
At the time of the HK handover in 1997, HK represented a whopping 18% of all of China's GDP. Today, HK represents only 3% of China's GDP. This happened in only 20 years.
China is doing what I can imagine any other country in their position would do: take advantage of foreign companies using their discount labor pool to obtain the technologies necessary to first become self-sufficient and eventually to lead.
We're at a juncture now, where for better or worse, the US is no longer willing to put up with the status quo because the myopic policies of the past, focused on self-enrichment, are coming home to roost. It's probably too late honestly, whether American companies withheld the last few years of advancements or not, the Chinese have developed sufficient domain expertise to catch up and lead on their own in short order. They do have 3X the US population after all, and appear much more motivated in their pursuit of science and technology than the US is.
This point in history represents a number of long-term story arcs coming together at once. I'm not condoning it, there's lots of history here.
Isn't that power? Power doesn't necessarily mean carrying out actual warfare, it means being able to do whatever you want without anyone stopping you. "We could stop them if we wanted to we just ... don't want to, yeah that's right..." rings pretty hollow. The fact that zero enforcement action has been taken means China is more powerful in the region.
All the UK can do to enforce the handover agreement is write strongly worded memos that get sent right into the shredder in Beijing. Similarly with the islands in the South China Sea. The response is basically "what are you going to do about it?" Not what could you do about it.
There's a lot of things game theory is very good at and has contributed to. It isn’t represented very well in publicly-accessible material and what is expressed comes across as markedly simplified to the point of irrelevance (which the examples are). But it’s a very powerful tool, actually.
They must have thousands of key decision makers in the West in their pocket.
However, the western executives that signed those deals, have long made their massive bonuses, it's all been paid out and some of those execs probably even retired. What do they care?
Such a great way to raid the company you manage at the expense of shareholders/employees.
Those agreements between private entities are almost certainly not public. However, I found a press release by Siemens AG [1] that says "Part of the contractual terms and conditions involves support and technology transfer in connection with production of the trains." In another press release [2], a Siemens VP is quite chipper about this: "Siemens is even more confident to support the development and modernization of Chinese railways and transfer highly advanced and proven technology of international standard to China"
I don't think you can speak of "wholesale theft" in this case of a voluntary deal.
[1] https://www.siemens.com/press/en/pr_cc/2005/11_nov/tstr20051...
[2] https://www.siemens.com/press/en/pr_cc/2006/04_apr/tstk20060...
The CEO of Siemens at the time was Klaus Kleinfeld. The bribery scandals were so bad in 2007 that he was forced out, and forced to settle with Siemens, 2 millions euros.
https://en.wikipedia.org/wiki/Klaus_Kleinfeld#Bribery_invest...
Now, ostensibly, these were scandals about Siemens bribing other countries. Do you think people at Siemens, with such high moral integrity, managed to pocket some bribes themselves?
Perhaps in exchange for handing over valuable IP? What's a signature or two between friends.
https://www.newsweek.com/2013/11/01/how-edward-snowden-escal...
I’m not fond of this whole “Eastern mysticism”/100-year-horizon crap; that sort of thinking is just soft-soled racism—along the same lines as the Noble Savage trope.
Back in reality, you can find countless examples of China behaving with rather absurd short-term obsession and making foolish mistakes due to that short-term thinking. They're doing it right now with Hong Kong. Or for example, in the way they've been willing to become the most leveraged nation in world history at record speed merely in order to buy a few more minutes of faster short-term 'growth' before they have to accept slower real growth in the system. That's long-term destruction in exchange for a short-term prop-up, something that is counter to the fantasy projection about China's long-term magical behavior. It also happens to be exactly what Japan did, exchanging long-term damage (resulting in long-term stagnation as the extreme debt robbed their economy of all of its dynamism) for a short-term propping up of the economy.
Total exports as a share of China's GDP have been dropping since the mid 2000s. They're now below 20%. Americans, and especially American pundits, however, seem to be living in the 1990s and early oughts, when exports peaked near 40% of GDP.
China still has huge poverty problems, but what's changed is that both China and the world have grown up and fully industrialized. The entire world is China's market now, not just the richest, Western nations. The world is a much bigger, wealthier place today than 20 years ago, and the trend will only continue.
This is not the case for self-sufficient continental cultures like agrarian China where equality of all men isn't how you get flood control and irrigation projects done and creativity and disrupting how seeds are planted isn't what keeps you alive.
[1] https://www.realclearmarkets.com/articles/2018/07/30/ip_thef...!
Trade is dependent more on environmental policy than currency ratios.
Tariffs reduce profitability of imports making them less viable for firms to use.
China’s success largely depends on low interest rates caused by the printing of money, not by a devalued currency which would be temporary as prices would adjust because as notathing says, there is international arbitrage in everything.
I think many expected this to happen, but what is interesting is that it happened today, so long before the election. China is effectively signaling that it can do a LOT more of this leading up to the election.
Imagine a lager currency adjustment that sent the Dow down 3K points. A lot of people are imagining that today who were not thinking about it before.
So this puts a lot more pressure on Trump to pull back on the tariffs. But Trump won't want to do that yet, so China has a bit of time to illustrate that Trump is not in control of things the way he claims to be.
As someone who does not want the US Government meddling in the economy, I'll be very pleased if China manages to force Trump to repeal the tariffs, regardless of whether China continues its own backward trade policies.
I think they will want to do that, but ultimately the US has limited ability to do certain things.
> couldn't that eventually obliterate trade relationships entirely and make war more likely?
Yes, that is in my opinion the worst aspect of Trump's trade policy. Economic cooperation between people of different nations helps prevent war. Trump is punishing Americans for cooperating with Chinese exporters, while trying to vilify the Chinese government, Chinese academics studying in the US, etc.
It's a horrible and repugnant political ploy. The US woke up and looked in the rear-view mirror and saw that China caught up dramatically in the past few decades (during which the US wasted trillions on the middle east).
China did not waste trillions in the middle east. Instead Xi lifted an unprecedented number of people out of poverty and invested heavily in Africa. China pours more concrete in a month than the US does in a year, and China produces more top tier hard science research than the US, not to mention China's top universities are 100x more competitive than Harvard.
Trump's actions reveal a weak and flailing US, the worst thing any of us can do is assume that he has a clue what he's doing in any kind of negotiation or foreign policy scenario.
1) The tariffs are not getting paid by China. That money is coming from American businesses that buy from China. The tariffs just force those companies to look for cheaper alternatives.
2) The devaluation now makes China that cheaper alternative again even with the tariffs because now the USD goes further.
End result now is it makes the tariffs more useless and China continues to disallow American imports.
But they devalued to compensate for the tariffs.
In effect, the tax is now being covered by China’s central bank.
Thus, the US trade deficit has been made worse, the US will continue to import from China.
China's central bank owns a huge chunk of US debt, so in effect, this is being covered by the US government over the long term, i.e. see the _Twin Deficits Hypothesis_ that federal deficits and trade deficits are related.
Also, the central bank in China didn't do anything to devalue the yuan, it was propping it up. A tariff decreases demand, ergo, it decreases demand for RMB vs USD, ergo, exchange rates drop and the yuan becomes cheaper from lower demand.
There's a "symmetry theorem" in economics that predicts this outcome to restore equilibrium (trade deficits offset by currency adjustment). So let's stop trying to cook up more excuses for Trump's trade policy. His own economic advisers disagree with it, and the fiction that "mexico" or "china" will pay for these tariff actions he's taking is a straight up lie to the citizens of the country.
Tariffs essentially boil down to a tax on the American people, just like any other tax.
Americans are paying more for the same products, and that money is going to the government which is using it in part to pay big US farmers.
The CCP does not believe in the rights of the individual and holds an iron grip on China. It is instituting policies straight out of an Orwellian dystopia and wants to export its model around the world.
The most powerful nation sets the world agenda, whether we like that or not. The United States cannot allow China to set the agenda.
- Orwellian social credit systems
- Content censorship "great firewall"
- Widespread imprisonment of minorities
- Concentration camps for especially undesirable minorities
In some ways each nation is better, and in some ways worse. But the important point is that both are using the same playbook to determine their domestic policies.
China had previously been "worse" for its own trade protectionism, but Trump decided to increase the US use of trade protectionism (a handout to exporters at the expense of importers and consumers as a whole).
To get a sense of the magnitude of the similarity between the two nations, consider the constant stream of stories in the US media about Chinese human rights abuses, etc., while the conditions in US prisons is largely ignored.
The US has absolutely no moral high ground over China, and it must be very amusing to Chinese people to observe the level of indignation that Americans feel about Chinese practices.
If they keep doing this, then their own people's savings is rapidly disappearing.
And since their people have a hard time buying US real estate anymore, won't the people get angry?
Of course they did that at a time when they knew the result would suit them...
It looks like a message to the US.